From Teddy Bears to Trump Towers, Here’s How Money Laundering Works

There are many ways to hide corrupt cash, but for big amounts it’s hard to beat casinos and real estate, which just happen to be the Trump family’s core businesses.

The Sinaloa drug cartel has long been the most powerful and sophisticated operation of its kind, a criminal enterprise that reaches into 24 of Mexico’s 32 states and as many as 50 countries. But for all its military-style sophistication and expansive taproots, the billion-dollar organization keeps bumping up against a basic, old-world problem: how to move cash.

The cartel sells most of its drugs in the United States to addicts who often pay for their heroin fixes in wads of singles and fives. That eventually adds up to more than $20 billion that has to make its way back over the border every year, which is a logistical nightmare: One kilogram of cocaine translates into three kilograms of cash. Smugglers shoehorn stacks of bills into air mattresses, washing machines, cereal boxes, and anything else with a cavity and decent odds of sneaking past border guards—but the sheer glut of greenbacks mandates savvier solutions.

Which is how Sinaloa got interested in clothing and teddy bears from China.

In recent years, according to the U.S. Drug Enforcement Administration, massive amounts of cash from narcotics sales have flowed into businesses in Los Angeles’ fashion district as part of what’s known as the black market peso exchange. This is how money laundering works in the age of hard-charging international trade. Those California businesses use the drug proceeds to purchase cheap clothing and footwear in bulk from China. The goods are stored in warehouses in L.A., then driven to Mexico or shipped to Colombia. Cartel operatives at these destinations sell the items at profits that the drug lords then pocket as legitimate revenue.

“One kilogram of cocaine translates into three kilograms of cash.”

In one variation of this scheme, runners dropped off bags containing up to $100,000 at the L.A.-based Angel Toy Company. The toy company’s Chinese executives then deposited this in the company bank account in quantities of less than $10,000 at a time, to avoid triggering what’s known within banks as a Suspicious Activity Report. Then the toy-company operatives wired money to a factory in China to purchase stuffed animals and dolls, which were then shipped to Colombia, where another party facilitated their sale.

Trade-based money laundering is only the latest iteration in what is now a massive and growing global problem. Tsunamis of cleansed money—unleashed by Russian oligarchs, from Taiwanese counterfeiters, from corrupt governments in Africa and Eastern Europe, and many more illicit sources—now roil around the planet in immense quantities. The UN Office on Drugs and Crime estimates that between $800 billion and $2 trillion in dirty money gets laundered annually.

These offenses are hardly victimless. A report released in August by the Financial Accountability and Corporate Transparency (FACT) Coalition points out that when criminals successfully cash in on their enterprises through money laundering, it exacerbates society’s deepest problems (PDF). “We see it in our communities: the opioid, methamphetamine, and cocaine epidemics are devastating,” the report says. “Financial fraud, fraud in government contracting, identity theft, and worse endanger individuals and our communities and waste taxpayer dollars. Terror finance and sanctions-busting threaten national security.”